Share transfer to foreign investors: conditions and procedures to know

In the context of economic integration, Vietnam is increasingly becoming an attractive destination for foreign investors. Acquiring shares in a Vietnamese company is one of the most common forms of investment, allowing investors to enter the market without establishing a new company. However, this process is not merely a commercial transaction but must strictly comply with current Vietnamese laws.  

This article provides a comprehensive overview of the conditions and procedures for share transfers to foreign investors, including shareholder rights and restrictions, transfer methods, registration procedures with government authorities, and relevant tax obligations. Understanding these regulations not only helps businesses and investors execute transactions smoothly but also ensures legal compliance and mitigates unnecessary legal risks. 

1. Legal regulations on share transfer of non-listed companies in Vietnam 

1.1 Right to Transfer Shares

For non-listed joint-stock companies, shareholders have the right to freely transfer their shares to others, except for the following cases that restrict share transfers:

• Restrictions on the transfer of ordinary shares held by founding shareholders for 3 years from the date the company is issued the Enterprise Registration Certificate.(1) Ordinary shares held by founding shareholders may only be transferred to another founding shareholder. Transfer to a non-founding shareholder is only allowed if approved by the General Meeting of Shareholders;   

• Restrictions on share transfers as specified in the company’s charter and detailed in the respective shareholder’s share ownership certificate.(2)  

1.2 Form of Share Transfer

The transfer shall be carried out through a contract/agreement, which must be signed by both the transferor and transferee or their authorized representatives in accordance with current legal regulations.(3) The parties are free to agree, establish, and terminate their rights and obligations, provided such agreements do not violate prohibitions of the law or social ethics. (4)

1.3 Conditions for the transferee to become a shareholder 

A transferee only becomes a shareholder of the company when their information is fully recorded in the shareholder register as follows:(5) 

• Name, contact address, nationality, and legal document number of individual shareholders; or company name, business number, or legal document number, and address of the organization for corporate shareholders; 
• The number of shares and types of shares owned by each shareholder;  
• The registration date of shares for each shareholder. 

Additionally, the company is obligated to update the shareholder register within 24 hours upon request by the relevant shareholder, as specified in the company’s charter.(6)

However, depending on whether the transferee is a Vietnamese or foreign investor, the company and the investor must carry out the corresponding licensing procedures, as follows: 

• For Vietnamese investors: The company is not required to carry out any registration or notification procedures with the Department of Planning and Investment of the province/city where the company is headquartered (“DPI”) once the transferee becomes a shareholder, as this is not required by law. (7)

• For Foreign Investors: Both the foreign investor and the company must perform the following licensing procedures with the DPI: 

Step 1: Register for foreign investors to be allowed to purchase shares of the company in Vietnam before the parties sign the share transfer agreement; 

Step 2: Notify the change in foreign shareholders to the DPI after the foreign investor’s information has been recorded in the company’s shareholder register. 

Additionally, the transferor is responsible for fulfilling and declaring personal income tax if they are an individual, or corporate income tax if they are an organization, in accordance with tax regulations. 

2. Procedure for foreign investors to acquire shares in a company in Vietnam

2.1 Registration for foreign investors to be allowed to purchase shares in the company

(i) Cases requiring registration for foreign investors to be allowed to buy shares: (8)

Foreign investors must complete the procedure for obtaining M&A approval to meet the requirements for purchasing shares of company before the company proceeds with the procedure to change the shareholder to a foreign investor if it falls under one of the following cases: 

• The purchase of shares increases the foreign investors’ ownership in a company operating in sectors subject to foreign investor restrictions; 

• The purchase of shares results in the foreign investor or economic organization specified in Article 23.1 of the Investment Law 2020 (9) holding more than 50% of the company’s charter capital in the following cases:  

• • The foreign investor’s ownership of the company’s charter capital increases from 50% or less to over 50%; or 

• • The foreign investor’s ownership of the company’s charter capital increases when the foreign investor already holds more than 50%. 

• The foreign investor purchases shares of a company that owns a land use right certificate for land located in islands, border communes, coastal communes, or other areas impacting national defense and security.

(ii) Required Documents: 

The company and the foreign investor must submit a complete set of documents for registering the share purchase to the DPI, which includes: (10)

• Application for capital contribution/share purchase (Form A.I.7 of Circular 03/2021/TT-BKHDT), which includes: the company’s business registration information; business sectors; list of founding shareholders; the foreign investor’s shareholding before and after the contribution/purchase of shares in the company; the projected transaction value of the share purchase; and information on the company’s investment project (if applicable); 
• Legal documents of the foreign investor and the company; 
• The original agreement in principle on capital contribution or share purchase between the investor and the transferor or the company;
• A declaration document with a certified copy of the company’s land use right certificate (applicable in cases where the company holds a land use right certificate for land located on islands, border communes, coastal areas, or other areas affecting national defense and security)..  

2.2 Notice of change of foreign shareholders 

Once the foreign investor’s information is updated in the shareholder register, the company is obligated to notify the DPI in writing within 10 days from the date of the change of the foreign shareholder, as recorded in the shareholder register. (11)

Required documents include: (12)

• Notification of change in business registration details; 
• A list of foreign investors as shareholders after the change; 
• Share transfer agreement or documents proving the completion of the transfer;
• A certified copy of the legal documents of the transferee, a certified copy of the legal documents of the authorized representative and a copy of the authorization letter for the authorized representative if the transferee is an organization. 
• M&A Approval regarding the foreign investor’s capital contribution or share purchase granted by DPI. 

It is evident that transferring shares to foreign investors is not merely a commercial transaction but must also strictly comply with legal regulations. Understanding the necessary conditions, restrictions, and procedures will help businesses and investors ensure legality, mitigate risks, and execute transactions effectively. Therefore, parties involved should seek legal expert advice to ensure a smooth transfer process and minimize potential risks. 

(1) Article 120.3 of the Enterprise Law 2020. 

(2) Article 127.1 of the Enterprise Law 2020. 

(3) Article 127.2 of the Enterprise Law 2020 

(4) Article 3.2 of the Civil Code 2015. 

(5) Article 127.6 of the Enterprise Law 2020 

(6) Article 127.7 of the Enterprise Law 2020. 

(7) Article 31 of the Enterprise Law 2020. 

(8) Article 26.2 of the Investment Law 2020 

(9) An economic organization is considered to fall under one of the following cases: 

• It has foreign investors holding more than 50% of the charter capital or has a majority of general partners who are foreign individuals in the case of a partnership; 
• It has an economic organization as defined in point a of this section holding more than 50% of the charter capital; 
• It has foreign investors and the economic organization defined in point a of this section holding more than 50% of the charter capital. 

(10) Article 66.2 of Decree 31/2021/ND-CP. 

(11) Article 31.3 of the Enterprise Law 2020. 

(12) Article 58.1 of Decree 01/2021/ND-CP. 

See more:

1/ Payment Methods For Transfer Price Of Shares/Contribution Capital Amounts Of Foreign Investors In M&A Transactions

2/ Solutions for cases where foreign investors contribute capital or pay for share transfers incorrectly

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